If VCs can’t see a path to a successful exit for IT hardware companies, how much more difficult will it be for companies producing physical products in the energy space, with substantially bigger safety and reliability challenges along with competition from well-funded incumbents? Building successful energy companies, even when following the few scaling strategies such as leveraging existing scale or pursuing a design-build-assemble approach which I laid out in a blog post last year, remains a challenge.

It is no surprise that there has been a lot of buzz around investing in companies at the software/energy interface. These types of companies, such as Enernoc, Comverge or Silicon Energy, have been around for a long time, but advances in the Internet space have created a new foundation that extends to the energy arena. The area at the Internet/energy intersection had been dubbed the CleanWeb. By the nature of the technology, CleanWeb companies usually require only modest capital investment before starting to generate revenue, avoiding many of the scaling challenges plaguing energy start-ups. A whole new ecosystem of CleanWeb focused accelerators such as Greenstart in San Francisco, SURGE in Houston and Greenlite Labs in Boulder has come to life to support new ideas in this space.

But this movement does not cover the entire spectrum of energy companies. What about energy challenges that can’t be fixed with IT solutions, but still require manufacturing a physical product to fill a need? Will VCs invest in these companies? We’ve heard of IT companies that make a physical product like Ouya, Adapteva or Pebble taking their wares to Kickstarter for funding. Some of these admitted that VC firms turned them down for funding.

We’ve even seen some energy companies follow this route such as LIFX or Wattvision. Kickstarter funders don’t require VC returns; they either want to be among the first to own the actual product or to just be a part of the excitement without receiving a tangible reward. (Hard to believe, but true!) When successful, these companies mitigate risk both by establishing a customer base and bringing in initial (non-dilutive) capital. VC funding may be the perfect fit for their later funding needs. While notable, to date there have still been just a handful of meaningful successes with this approach. It remains to be seen whether crowd funding will continue to grow and become a viable path for a meaningful subset of energy companies, especially those with consumer facing products.

We have our eye on another sphere of innovations that may create VC opportunities for physical products in the energy space: manufacturing innovations. For example, advances in the field of 3D Printing will conceivably bring manufacturing costs down enough to even meet VC investment criteria. 3D printing has been around since the first Stereo Lithography machines hit the market with a price tag over $250,000 back in 1986. Twenty-five years later, anyone can acquire a breadbox-sized MakerBot 3D Printer for less than $2000. It is possible that the affordability and new capabilities of 3D printing will change the way products are manufactured, even products for the old-fashioned energy industry. The cost and time of prototyping new designs, from a new turbine blade to a new solar panel mounting bracket or an intricately designed heat exchanger, could drop dramatically. Also, 20% of 3D printing output is already producing final product with that percentage expected to increase as capabilities improve, reducing the money and time spent in product development as well. Even the Federal government has pledged $30 million in funding to create the new National Additive Manufacturing Innovation Institute.

3D printing isn’t the only promising manufacturing innovation. Vibrant Research is working on snap-in-place fabrication that may scale to mass manufacturing volumes cheaply enough to deliver VC returns. There may be new investment opportunities as companies applying standard inkjet printing techniques to reduce the cost of making solar modules or batteries continue to make progress. Inventors and entrepreneurs have countless ideas for reducing manufacturing costs, even in the capital-intensive energy industry.

It remains to be seen whether these efforts and innovations will be enough to create new paths for successful investments in hardware-only business models or whether VC investments in physical products in the IT and Energy arena will have limited interest for the foreseeable future.